Forecast

Tools for youthful savers/investors

on April 18, 2014

When I present before local and national audiences on the subject of investing, I'm often asked where one can access useful information for neophyte investors that is not only unbiased and easy to understand, but also actionable.

The timing to address this issue couldn't be better, given the initiation of President Barack Obama's Advisory Council on Financial Capability for Young Americans. As we discussed last week, the council met for the first time in March. Its mission, in my words, is to help young Americans achieve financial capability.

Because of the importance of this goal, I'm asking you to contact me by email (readers@juliejason.com) with your observations, questions and insights on how to reach young people with information that will motivate them to save and invest for the future. It also would be helpful to hear about young people you know who could be successful role models for others.

Specialists in financial education, such as Paul Golden of the National Endowment for Financial Education felt that financial education was viewed as simply providing information to kids in high school that would set them up for life. That didn't work, Golden explained. NEFE is an independent nonprofit dedicated to "inspiring empowered financial decision making for individuals and families through every stage of life."

"At NEFE, with more than 30 years in the business, we're learning a lot about how to reach people at critical life decisions like buying a house, starting a family, or even going to college," said Golden. "So, our work is to provide people with the tools, knowledge and the encouragement to get information, starting with the classroom, through the workplace, all the way onto retirement."

NEFE's website (www.nefe.org/) is the starting point to finding a wealth of educational tools for individuals, as well as materials for educators. NEFE's Smart About Money materials, which are focused on decision-making, are at www.smartaboutmoney.org.

Worksheets are grouped into the following categories: "Daily Decisions," "Crisis and Emergencies," "Debt Management," "Life Transitions" and "Work and Money." They are designed to be actionable and guide you through the math involved in certain financial planning tasks, such as debt repayment, setting up an emergency fund, knowing what you owe, creating a daily spending diary and plugging spending leaks -- that is, realizing the true cost of that cup of coffee you buy every morning. The worksheets are available at http://tinyurl.com/p9qxpxd.

The calculators (http://tinyurl.com/meefged) are grouped the same as the worksheets. You'll want to check out: Should I lease or purchase an auto? How long will it take to pay off my credit card? and Should I refinance my mortgage?

If you are working, be sure to try out "How will payroll adjustments affect my take-home pay?" With this easy-to-use calculator, you can figure out the impact of changing your withholding allowances for tax withholding purposes. For example, if you are single, with earnings of $1,000 every other week, you can see the effect of a change in withholding allowances. Say you start with one allowance in your "current" column, you can "What-If" two allowances, but make no other changes. Take-home pay would increase by $23 per pay period.

This "What-If" tool is very helpful for people who are worried about not having enough money to participate in their 401(k) plan at work. Using the tool shows you how to leverage withholding allowances.

You can see what happens to your paycheck if you add a 401(k) contribution. For example, if you start contributing 3 percent or $30 a pay period, your paycheck will drop by only $3, according to the calculator. The results show you how that's possible: Because the 401(k) contribution is pre-tax, your taxable income goes down by $30, which means your tax liability goes down as well. That translates into your paycheck decreasing by only $3.

You can try increasing the 401(k) contribution to 6 percent and increasing your withholding to four allowances. Your take-home pay drops by only $5. This is an extremely valuable lesson that is hard for investors to fathom. With the calculator, you can see the results and convince yourself whether you can afford to pass up contributing to your 401(k).

"Your Spending, Your Savings, Your Future" is a "Beginner's Guide to Financial Readiness" and is available at http://tinyurl.com/o6cdkg7.

If you have an interest in becoming involved in promoting financial education or improving your own knowledge, reach out to me. I will be putting together an initiative to help millennials begin investing.

Julie Jason, JD, LLM, award-winning author of "The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad, " and "Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad, " is principal of Jackson, Grant Investment Advisers, Inc. of Stamford. Please email her with questions at readers@juliejason.com or write to her c/o The Advocate, 9A Riverbend Drive South, Box 4910, Stamford, CT 06907. Copyright 2014 Julie Jason.